Author Topic: Making $ in Austin's crazy market. Cash out my primary residence to buy rentals?  (Read 2255 times)

nen

  • 5 O'Clock Shadow
  • *
  • Posts: 8
  • Location: Austin, TX
  • FIRE eager
Hi everyone.  I found this site last night and have been reading it all day!  Thanks for all the great info.

My husband and I live in Austin, don't plan on having kids, and both do social work (so make modest salaries). Exactly 5 years ago, we put 20% down on a 195k SFR, our first home.  In January 2013, we put 25% down an a 180k duplex that is just at the 1% rule and cash flows $500 a month. The market here is insane.  The duplex is now worth 220k, and our primary residence is worth 285k.  We're considering cashing out to 80% on our primary to buy 2 more rentals, probably a SFR just south of here and one multifamily in the midwest.  Our retirement plan is to buy and pay off 4 or 5 rentals, and this seems like a quick way to jump start the process.  Is cashing out a bad idea? The new mortgage will be well within our means.  We don't have other debt and live very simply. I'd appreciate any advice you more experienced investors have.  We will likely stay in this house forever.

Thanks!

SDREMNGR

  • Bristles
  • ***
  • Posts: 324
The answer to the question depends on the numbers of what you are buying.  If it is a good investment, then refinancing in today's low rates is a good business idea.  Make sure that you also have a good margin of error and can handle any potential cashflow crunch that may happen from god knows what.  Don't spread yourself too thin but do take smart risks.  Good luck with your purchase!

waltworks

  • Magnum Stache
  • ******
  • Posts: 3400
I'm confused - when you say "cash out to 20%", do you mean HELOC your primary residence? How much equity do you have?

I'd echo SDREMNGR - if the deals are good, the deals are good. If you can swing the financing, do it. If the deals are not so good (sounds like it might now be pretty hard to find stuff in Austin?) then do something else.

-W

nen

  • 5 O'Clock Shadow
  • *
  • Posts: 8
  • Location: Austin, TX
  • FIRE eager
Thanks for the response.

We have a little over 100k in equity.  We'll refi the entire mortgage and cash out everything except 20% equity.  It is hard to find good deals near Austin, so we'll look a little outside of town.  We're also thinking of a multi unit in my hometown in Ohio.  Property is very affordable there.  Any advice on 4 to 8 unit purchases? When looking for deals, is there a formula to use for how much cash is invested and how much cash flow is created after PITI.  Seems the 1% rule doesn't directly address cash flow since property taxes vary so much in different areas. It's high in Austin, and pretty low in Ohio.

Thanks again for your help!

waltworks

  • Magnum Stache
  • ******
  • Posts: 3400
50% rule can help with evaluating but you need to get really specific with specific properties to figure out if it's a good deal. Higher property taxes will make things harder, of course.

I only own SFRs in my own area so I don't have much direct experience with 4-8 unit stuff or remote investments. Obviously you'll need to hire some management and that's it's own can of worms. And keep in mind that you're going to be leveraged to the hilt so I'd be very conservative/picky about finding a really good property or properties using your home equity.

-Walt

Thanks for the response.

We have a little over 100k in equity.  We'll refi the entire mortgage and cash out everything except 20% equity.  It is hard to find good deals near Austin, so we'll look a little outside of town.  We're also thinking of a multi unit in my hometown in Ohio.  Property is very affordable there.  Any advice on 4 to 8 unit purchases? When looking for deals, is there a formula to use for how much cash is invested and how much cash flow is created after PITI.  Seems the 1% rule doesn't directly address cash flow since property taxes vary so much in different areas. It's high in Austin, and pretty low in Ohio.

Thanks again for your help!